Lack of Affordable Housing Costs $1.4 Billion Per Year in Lost Wages and Productivity

A study from economists at the University of Chicago and the University of California at Berkeley concludes that the lack of affordable housing in major metropolitan areas costs the U.S. economy an estimated $1.4 trillion each year in lost wages and productivity. The researchers attribute this to the effects of restrictive land use policies on the supply of housing, but do not explain which land use policies they examined. The study measures the economic contribution of 220 metropolitan areas to overall U.S. economic growth between 1964 and 2009 using data on employment and wages at the county level from the U.S. Census Bureau’s County Business Patterns (CBP) and data on worker characteristics from the American Community Survey (ACS) and the Census of Population (CPS).

The study asserts that in many metropolitan areas the cost of housing limited overall economic growth. For example, fast productivity growth in cities such as New York and San Francisco led to increased housing prices and wages, but did not increase overall employment. However, in Southern cities where the housing market is not as dynamic, wages and housing prices grew modestly, while employment grew more significantly.

The researchers conclude that land use regulations, which they do not define or describe, restrict the housing supply and reduce economic output. They estimate that reducing land use regulations in large cities would expand the size of the work force and increase the U.S. gross domestic product by 9.5%. The authors posit two solutions. One suggestion is that the federal government adopt a nationwide standard for land use regulations. Another suggests developing a more robust public transportation system linking housing and jobs, thereby reducing the effects of land use regulations on the economy.

Why do Cities Matter? Local Growth and Aggregate Growth, is at